With its historic $18.7 billion settlement of all federal and state claims arising out of the 2010 Deepwater Horizon oil spill, BP avoided what could have been significantly larger penalties.
A federal judge’s recent rulings putting a potential $13.7 billion price tag on federal Clean Water Act violations helped motivate BP to negotiate a settlement, rather than to continue to fight the claims in court, Bloomberg reports.
Under the terms of the proposed settlement, a record $5.5 billion will cover the Clean Water Act penalties. Louisiana, Mississippi, Alabama, Florida, and Texas will also receive payouts for damage from the disaster, with all payments to be spaced out over as long as 18 years.
“BP was staring down a gun barrel and had to find some way to settle this,” David Berg, a Houston trial lawyer, told Bloomberg.
Wall Street analysts said the settlement would be a manageable burden for a company that earned a profit of $2.6 billion in the first quarter despite low oil and gas prices.
“Every aspect of this deal is better than what both we and the market were expecting,” Stephen Simko, Morningstar’s director for energy research, told The New York Times.
Fadel Gheit, a senior analyst at Oppenheimer & Company, compared the settlement to a 30-year mortgage and estimated that it was half of what the company could have faced.
“BP is now in the best shape since [the disaster] in terms of looking into the future,” Gheit said. “The only risk going forward for BP is oil prices, and that is the same for Exxon Mobil or Chevron or any other company.”
Payments to the states and federal government will not begin for another year, giving BP relief at a time when revenue is dropping because of the 40% drop in oil prices over the last year. Much of the payment will be tax-deductible.
The settlement, which is subject to approval by a federal court, does not end BP’s legal struggles entirely. It still faces numerous lawsuits from shareholders and businesses, as well as Gulf residents who opted out of a class-action settlement reached in 2012.